Washington state’s effort to spark the biotech industry tends to get overshadowed when stacked up against bigger initiatives from other states. California has thumbed its nose at President Bush, pouring a whopping $3 billion into stem cell research. Massachusetts Gov. Deval Patrick pushed hard for a 10-year, $1 billion initiative to promote life sciences in the Bay State.

Washington state spent years debating what to do, through an initiative formerly called Bio21. Now it’s being put into practice under a new name, the Life Sciences Discovery Fund. It’s a 10-year program that will take about $350 million the state is receiving from the 1998 legal settlement between states and the tobacco companies, and funneling it into biomedical research. So far, it has paid out 17 grants worth $32 million.

Supporters of the plan back in 2005, put forth then by newly-elected Gov. Christine Gregoire, projected that the intensified research funding could create 20,000 jobs and 100 companies over the next 10 to 15 years. Now that the lofty rhetoric has faded away and the real money is rolling in, I sat down with Lee Huntsman, executive director of the Life Sciences Discovery Fund, to learn more about how this fund is supposed to work.

Huntsman is a biomedical engineer by training who rose through the bioengineering faculty at the University of Washington and then took on various administrative posts before ultimately becoming president of UW. He gave state lawmakers an update on the program last week, and expanded on it in an interview with me at his office along Eastlake Avenue in Seattle.

Lee Huntsman: We have a mission to improve health in Washington, to improve economic benefits of the life sciences, and as a consequence of all that, make the components of our life sciences industry—institutions and companies—more competitively successful. It’s important to me that people grasp that so they can see the logic of how we’re going about it. They can decide for themselves what kind of job we’re doing. I find that people don’t necessarily start with a balanced view of what the mission is.

Xconomy: What kind of misperceptions do you think are out there?

LH: Some people think we’re a state-funded venture capital fund, or we’re only interested in basic science. There are different takes on this. We’re not a totally unique model, but we are a pretty clear, definite approach in our mission and how we go about it. We try to make it crystal clear.

X: So how are the perceptions really wrong?

LH: We do not make grants to companies. We have decided the sweet spot here is human health, researchers, research institutions, and collaborative ventures. To be successful, we have decided we are not in the same game as investors. We are not in the same game as NIH. We are in a catalytic role. We are trying to help people launch new ideas with a genuine prospect for impact. We’re not aiming to be a sustaining supporter, we’re aiming to provide launch support for new ideas and collaborations.

X: At which point, commercial investors take over?

LH: That’s the logical consequence if we help somebody launch a project. We’re also very interested in the metrics of success. That’s why, for example, we wrote a report to the legislature and told them how we think about return on investment. There are lots of metrics of success, jobs being one. One simple metric is money. A measure of success is if our awardees get more competitive and win more grant money. Suppose our grantees include an institution and a company partner, and the company goes forward and attracts investment capital. There’s a very clear measurement of impact. A third measure of economic impact that’s a little harder to gauge, but feasible, is if our awardees could accomplish something to mitigate the cost of health care. That is such a big deal, not only for state government, but for employers. If you could make the slightest dent in health care costs, particularly if you can improve quality and reduce costs, the economic benefits would be enormous.

We regard research as an industry. It’s a very important industry. It imports a lot of money, and that money stays in the Washington economy and is hugely beneficial.

X: So, back a couple of years ago when the policy debate was going on about what to do, there was a lot of talk about Washington being behind other states. Where does the state rank now?

LH: There are probably only a handful of states that don’t have a life sciences strategy. Their approaches are all over the map. Some have been at it a long time. Some less so. They’re all trying to find the way. Washington has never had a state- level focus, so that’s what makes the Life Sciences Discovery Fund pretty startling. It’s a very solid commitment by the state to facilitate success. The fact that Washington chose to do this has attracted a fair amount of attention inside the state.

X: Given what California did with the $3 billion initiative for stem cells, and Massachusetts putting $1 billion in, do you feel completely outgunned here?

LH: No. Here’s the way I do the math. We’re not big, this is a classic Washington play in trying to get more for the dollar than other people. But, $3 billion for the California stem cell initiative across 40 million people, as opposed to $350 million over 6 million people. If you do the math per capita, it’s in the same ballpark. If you deconstruct the Massachusetts initiative, for example, it’s a billion dollars, but my memory is only $250 million of it over 10 years is for grant-making. The rest of it is for facilities and infrastructure. On the other hand, I don’t want anybody to think the Life Sciences Discovery Fund is all the state should be doing, because state institutions need help with facilities costs. There’s a lot of elements to being competitive. But for the part our strategy is focused on, with grant-making to help people launch new things, I don’t think we’re being outgunned.

X: I’ve read some criticism of the fund from specifically, Leroy Hood, about a year ago. He said you’ve made every mistake you could make. It’s not focused. The board doesn’t have science people. Washington was behind those other states. Have you done anything in the past year administratively that addresses any of those criticisms, or do you consider it invalid?

LH: The trustees and staff had conversations all around the state about how to go about its mission. The trustees are very engaged in the approach. We understand there is some criticism, but the heart of that is the notion that only laser-like focus will do, and fundamentally, we have chosen to ask people to give us your very best ideas. Convince us why your ideas have a high probability of health and economic benefit. Convince us that support from the LSDF is important to pursue it. Convince us that your idea is sustainable on its own. That’s the strategy we’ve chosen. We’re not only interested in Disease X or Technology Y. We’ve chosen an approach that says we’re here to launch the most compelling ideas. We have a very rigorous process, so your idea better be bloody compelling.

X: You talked earlier about the metrics for success. What are the metrics you’re using for five years from now?

LH: When we make an award, our awards are different than NIH or somebody else. These awards are milestone-based, and we get semi-annual progress reports. Both written and oral. We’re tracking them. Our awardees are expected to not only design their progress reports, but give us progress reports for five years after the award is given. That’s where metrics come in. We want to know how the project is proceeding, but we have metrics to gauge impact. We ask a lot of questions like how many people did you hire? Have they developed other new partnerships from it? Have they gone after other grants? Is there technology transfer underway? How’s that going? We expect them to be able to report that across our whole portfolio.

X: Is it realistic to count on job growth coming from these kinds of grants?

LH: We’re in the leverage business. We expect to leverage continued and expanded activity in research, health, and commercialization. So yeah, job growth is a reasonable expectation. But the Bio21 task force struggled with how to estimate this. We’re going to try to count money and partnerships as well as jobs.

X: Are people in the legislature expecting to see results in terms of jobs, companies, economic impact on the state now, or is the legislature patient with the time it takes to develop new products?

LH: You have to ask them, but so far, they are acting like they are sufficiently patient. They understand this is an investment strategy. Some of the returns will come quickly, and others will take a longer period of time.

X: What happens to this program if Gov. Gregoire is no longer the governor as of November?

LH: Mr. Rossi made an appearance at the WBBA board retreat. Dino said some good things about life sciences. He was asked specifically by a WBBA board member who said the Life Sciences Discovery Fund is very important to the WBBA community, and how does he regard it? He said good things about it, and saw no reason to change it.

X: Have you had a one-on-one conversation with him about it?

LH: No, I haven’t.

X: What about the legislature? What kind of feedback are you getting from them?

LH: I’ve been there three times, three years in a row, to present to the House Committee on Technology, Energy, and Communications. I was just there last Friday. I gave a presentation and got what I thought was a good response. It’s a progress report, so we’re not in front of the legislature asking for decisions. The good news is that we’ve got three sets of awards launched, and within months of making a decision on a fourth. But it’s still early. Even the first awards we made are less than a year old. So we have exactly one set of semi-annual progress reports in so far. We’re now up to 17 awards, and we’ll make another handful in December. So we were able to remind them about our mission and how we go about it, and focus on examples of the awards and what they are trying to accomplish.

X: How long do you want to keep doing this? At what point do you say you’ve accomplished what you want to do here?

LH: I’m not focused on that question now. I am quite proud of what we’ve accomplished here, though.